This exploratory project is intended to examine behavior in the market for medical insurance. Theoretical development and preliminary testing with respect to two closely related problems facing the medical insurance market will be undertaken. The first problem is adverse selection and the second moral hazard. Economists tend to view these two problems as sources of inefficiency, but ignore the fact that the presence of "inefficiency" implies an untapped profit opportunity. The central hypothesis of this project is that the observed diversity of arrangements in the medical insurance market results from forces exerted to reduce and perhaps to eliminate inefficiency. An exploratory grant is sought to permit the principal investigator to further develop the conceptual model and preliminary testing, with the objective of joining with other interested faculty at the University of Washington in developing more elaborate empirical studies in the future. There is strong institutional support for the further development of this area of research on a collaborative basis.